India has been one of the fastest growing economies for decades and has been a favoured business destination for large multinational corporations. Many of these, even after having set up their businesses in India, have often complained about the difficulty of doing business here due to the statutory and regulatory set-up.
The demand for reforming statute and regulation to ease doing business has been growing since the very beginning of globalization in India. Up until 2015, India was ranked 142 out of a total of 190 nations. In the past five years, India has worked on easing its regulatory infrastructure, reducing unnecessary compliance, digitalization, and reducing human interfaces and processes. As reported in the 2019 edition of the World Bank study on ease of doing business, India is now ranked 77 out of 190 nations.
India’s government has taken various steps to ease doing business. There were several major amendments to the Companies Act, 2013, and Insolvency and Bankruptcy Code, 2016, which resulted in faster and more convenient incorporations and better contract enforcement, respectively. Further liberalization in foreign direct investment (FDI) policy, and allowing 100% foreign investment in many sectors through an automatic route, were key for such growth, while for some sectors there is still a cap and investment limits under the automatic and the approval routes.
The government is in the process of bringing about major reform to labour laws. The reform will see the repeal of 38 existing labour laws, replacing them with four new labour codes with the stated objective of streamlining law and making it more efficient. These are the Industrial Relations Code (replacing three labour laws), the Code on Wages (replacing four labour laws), the Code on Social Security (replacing 15 laws) and the Code on Occupational Safety and Health, and Working Conditions (replacing 16 laws).
The 2018 amendments of the Companies Act, 2013, have made incorporation effortless by enabling zero-day incorporation and fewer compliance issues to be taken into consideration. For example, the new e-form named INC- 32, which is also called SPICe (simplified proforma for incorporating company electronically), is a single e-form for various services relating to incorporation of a company.
Similarly, the Ministry of Corporate Affairs has introduced a zero-fee policy for incorporation of companies with share capital of less than US$15,660, and a more effective system for name approvals has been created called RUN (reserve unique names), which is a simple online process with fewer fields to be completed.
The ministry has also taken significant steps to protect the interests of minority shareholders, maintain transparency in transactions, and provide voting rights to them. The government also strengthened the management system by enhancing electronic document circulation and implementing a single-window clearance system in Delhi.
The government has also recently been working on easing the licence procurement procedure for companies. Portals like “shram suvidha” have been developed by the Ministry of Labour & Employment where online applications can be made for obtaining a unique labour identification number and other labour-related licences and registrations like employee provident fund, employee state insurance, etc., which make the procedure of obtaining labour licences more convenient and effective.
Several other licences and registrations like goods and services tax (GST), trade licence, licence under the shops & establishment acts and others have been shifted from physical paper applications to online process to provide faster services and reduce the burden of paperwork. Such initiatives have minimized physical interaction between government departments and organizations, which has also helped reduce corruption.
This change has been the outcome of various reformative steps taken by India to abolish archaic laws, enact new efficient legislation, update old laws, introduce programmes like “Make in India”, and liberalize FDI policy. These reforms have not only motivated Indian businesses to grow their enterprises, but have also increased foreign business confidence in setting up business in India, by either setting up their own operations or by partnering with Indian businesses.
While the changes are promising, a lot of effort is still required to implement them. The government has promoted the participation of private players in implementing new policies and changes, but due to inexperience in the workforce and a lack of proper training, the online procedures are not yet working at their most efficient levels.
For instance, the introduction of a GST, which has subsumed most of indirect taxes into one tax, is a good reform for the economy, but a lack of awareness in the business community and inappropriate infrastructure has caused a lot of confusion with assessments. The process of filing returns and information on the online tax portal has not been streamlined even 18 months after its implementation. These policies are well intended but the government lacks the ability to deliver their proper implementation.
Ravi Singhania is the managing partner and Rudra Srivastava is an associate partner at Singhania & Partners
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